China Consumer

Battle on the home front

How local brands are taking market share from P&G in China

Battle on the home front

For years Procter & Gamble’s products have reported strong sales in China. Brands like Olay and Rejoice were the best-selling facial cream and shampoo in the country. Its Crest toothpaste was also a market leader. But P&G’s market share in China has been slipping in various categories. In the first half of the year, its share of the toothpaste market fell to 19.7% from 20.8%. In tissues and hygiene products, pole position was ceded to domestic firm Hengan, which had 10.6% share compared to P&G’s 10.5%.

P&G executives are more than aware of the challenge. The Changjiang Daily claims to have seen a memo to staff, released after the company announced its performance for the first half of the year. In it a senior manager wrote: “Thanks to everyone’s hard work sales went up by 1%. However, market share was down 0.4%, and that’s a very big challenge for us.”

Part of the reason is that local brands are moving upmarket, traditionally a segment occupied by the foreign marques. Take Yunnan Baiyao, a Chinese herbal toothpaste promising whitening properties and care for sensitive gums. It sells for Rmb28 ($4.48) a tube, which is towards the top end of the local market’s price range. Yet the toothpaste’s market share grew to 8.8% in 2011 from 1.1% five years ago, according to market research firm Euromonitor. Toothpaste share in China for Unilever, which sells the Zhonghua brand, fell to 9.9% from 12%.

“Yunnan has made the biggest market share gains in the past two or three years because it’s a local brand going premium – way more premium than anything else,” says Ted Hurley, associate director of consumer goods at Nielsen.

Even in sectors where it has traditionally enjoyed a strong foothold, P&G is having to fight hard against local competition. Nice Group and Guangzhou Liby now control a combined 27.6% of the detergent market, says Euromonitor. P&G has a smaller 7% share.

Analysts attribute the success of the local brands to several factors. Chinese manufacturers have learned quickly from their global rivals, especially in areas like packaging and advertising. Liquid soap maker Guangzhou Blue Moon doubled its ad spending to more than $500 million in 2011, hiring former Olympic diving princess Guo Jingjing to endorse its products, says Changjiang Daily.

Chinese firms are also innovating. Blue Moon tweaks its hand soap formula frequently to include new scents like wild chrysanthemum and baby buckwheat (not a fragrance WiC has heard of before). Liby also comes up with a new formula for its detergent at least once every two years, says Global Entrepreneur, although a P&G executive told the magazine that it believes the speed at which Liby turns out new products is “too quick” (i.e. with all the associated costs of a new launch, the short lifespan of the products won’t maximise profit).

Despite this, local brands are closing the perceived quality gap with foreign products as well. For some products, consumers can no longer readily distinguish between the two. In fact, a Nielsen survey this summer suggested that 70% of consumers in China’s smaller cities thought that P&G’s Ariel laundry detergent was a local brand.“P&G entered China in the 1990s when consumers did not have much choice, so they thought they liked the brands. But now there are multiple brands and they cannot tell whether other brands are better or not,” Ge Wenyao, chairman of Shanghai Jahwa, a local cosmetics company, told the Financial Times last year. “Now Chinese companies have grown and learned a lot from foreign firms. They have better marketing and feel much more confident.”

But is Ge proclaiming victory too soon? P&G says the premise that multinationals are set to lose more ground to local companies is flawed, and often ignores the bigger picture.

“It only works if you pick a subcategory and then make comparisons. But you could equally pick another sub-category and demonstrate that multinationals are gaining share,” spokesman Paul Fox told the Wall Street Journal.

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